Provider's Fee Splitting With Billing Company Does Not Constitute a Defense to Provider's No-Fault Claim for Payment

NO-FAULT – PROVIDER FEE SPLITTING WITH BILLING COMPANY – SPECIAL PROCEEDING TO VACATE MASTER ARBITRATION AWARD – LICENSING REQUIREMENTS – PROFESSIONAL MISCONDUCT
Matter of Allstate Prop. & Cas. Ins. Co. v. New Way Massage Therapy P.C.
(1st Dept., decided 12/10/2015)

It is "professional misconduct" and illegal in New York for any licensed professional to "[p]ermit[] any person to share in the fees for professional services, other than: a partner, employee, associate in a professional firm or corporation, professional subcontractor or consultant authorized to practice medicine, or a legally authorized trainee practicing under the supervision of a licensee." New York Education Law § 6530(19).

11 NYCRR § 65-3.16 (a)(12) states:

A provider of health care services is not eligible for reimbursement under section 5102(a)(1) of the Insurance Law if the provider fails to meet any applicable New York State or local licensing requirement necessary to perform such service in New York or meet any applicable licensing requirement necessary to perform such service in any other state in which such service is performed.

So if a New York-licensed health care provider shares or splits its professional fees with a non-professional, may the no-fault insurer deny payment?

Allstate denied payment for massage therapy services to provider New Way Massage Therapy PC based on its conclusion that in violation of New York Education Law § 6530(19) New Way was illegally splitting or sharing 5% of its fees with its billing company, Island Billing and Processing LLC.

New Way contested Allstate's denial in arbitration and initially lost, arbitrator Marilyn Felenstein finding that New Way had not convinced her that its fee-splitting agreement with Island Billing "does not violate the rules of the New York State Education Department or that the agreement does not violate the prohibitions of the New York State Department of Health Medicaid regulations."

New Way appealed to master arbitration, arguing that the lower arbitrator improperly shifted the burden of proof in the matter to New Way.  Master Arbitrator Norman H. Dachs agreed and directed an award in the amount of $1,041.84 for New Way.  In vacating the lower arbitrator's award, the Master Arbitrator found that "the Lower Arbitrator not only inappropriately shifted the burden from [Allstate] to prove its defense to [New Way] to negate it, she also committed an error of law." Specifically, the Master Arbitrator found that Arbitrator Felensten had committed an error of law in two respects. First, the Master Arbitrator found that Arbitrator Felensten was incorrect in finding that New Way was involved in improper fee sharing because

an arrangement whereby a medical provider pays a bill collector a fixed percentages of amount collected on matters referred to such bill collector, after services have been rendered and where self-collection efforts have been unsuccessful, cannot be said to be within the purview of either Education Law § 6530(19) . . . or 8 NYCRR § 29.1. 

Additionally, the master arbitrator found that

if, in fact, the arrangement between the provider and the collection firm is, technically, illegal, the remedy lies in disciplinary proceedings or, at most, may provide a defense to the parties to the agreement. It should not be the basis for a windfall for the benefit of a non-party thereto, such as the insurer in the case. (Emphasis added.)

Allstate thereafter commenced this CPLR article 75 special proceeding to vacate the master arbitration award.  In denying Allstate's petition and confirming the master arbitration award, New York County Supreme Court Justice Cynthia Kern distinguished Allstate's fee-splitting argument from a Mallela defense, and reasoned:

In the instant action, the petition to vacate the Master Arbitration award is denied as there was a rational basis for the award. Master Arbitrator Dachs vacated and reversed the lower arbitrator's award on the ground that it was contrary to law. Specifically, Master Arbitrator Dachs found that, among other things, Arbitrator Felensten's award was incorrect as a matter of law as a provider's participation in an improper fee sharing agreement is not a valid ground to deny said provider's claim for no-fault benefits. This determination is rational as there is no statute, regulation or established precedent that gives an insurer the authority to deny no-fault benefit claims on the ground that the provider is participating in improper fee sharing. Indeed, Allstate has failed to present the court with any authority supporting its contention that it is well established law that a provider participating in illegal fee sharing is not entitled to reimbursement of no-fault benefits. Instead, the cases cited by petitioner stand for the proposition that courts will not enforce contracts between parties that are violative of the prohibition of fee-splitting and, as such, are inapposite. See Necla v. Glass, 231 A.D.2d 457 (1st Dept 1996); LoMango v. Koh, 246 A.D.2d 579 (2nd Dept 1998); Hartman v. Bell, 137 A.D.2d 585 (2nd Dept 1988); Sachs v. Saloshin, 138 A.D.2d 586 (2nd Dept 1988). Thus, the Master Arbitrator acted rationally in vacating the lower arbitrator's decision and issuing an award in favor of New Way.  (Emphasis added.)

On Allstate's appeal of Supreme Court's order confirming the master arbitration award, the First Department, Appellate Division, AFFIRMED in a two-sentence holding:

Whether or not the fee-sharing arrangement at issue constitutes unprofessional conduct (see 8 NYCRR 29.1[b][4]), it does not constitute a defense to a no-fault action (compare State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313 [2005] ["insurance carriers may withhold payment for medical services provided by fraudulently incorporated enterprises to which patients have assigned their claims"]). It is solely a matter for the appropriate state licensing board (see e.g. Necula v Glass, 231 AD2d 457 [1st Dept 1996]; see also H & H Chiropractic Servs., P.C. v Metropolitan Prop. & Cas. Ins. Co., 47 Misc 3d 1075, 1078 [Civ Ct, Queens County 2015]).  (Emphasis added.)

The court's "see also" citation to the April 24, 2015 decision of Queens Civil in H & H Chiropractic Servs., P.C. v Metropolitan Prop. & Cas. Ins. Co. is significant.  That case was the first to hold in New York that fee splitting is not a viable defense to payment of an otherwise valid no-fault claim.

Motion Court Holds That No-Fault Insurer Had No Right to Demand EUOs of Medical Providers' Purported Owner Prior to April 5, 2002

NO-FAULT – INSURER'S RIGHT TO EUO – COLLATERAL ESTOPPEL – ARBITRATED CLAIMS
Brentwood Pain & Rehabilitation Servs., P.C. v. Progressive Ins. Co.
(Sup. Ct., New York Co., decided 8/19/2009)

Plaintiff medical providers, Brentwood Pain & Rehabilitation Services, P.C. and Hempstead Pain and Medical Services, P.C., sued various Progressive Insurance companies to recover approximately $7 million in no-fault claims for services they allegedly provided to their assignors for injuries sustained in automobile accidents. Plaintiffs claimed that since 1996, they treated Progressive claimants and timely submitted bills for services, and that Progressive refused to pay almost all of the submitted claims from 1996 to April 4, 2002.

It was undisputed that following receipt of the claims from Brentwood or Hempstead, Progressive made various verification requests of the plaintiffs. Included in the requests were demands for examinations under oath (EUOs) of Dr. Brutus for each claim submitted, the names and license numbers of the medical providers providing each service, and handwritten and signed notes by the providers. Brentwood and Hempstead claimed that they complied with essentially all of the requests, except those for Dr. Brutus' EUO. Plaintiffs argued that Progressive had no legal right to request EUOs of plaintiffs as a form of verification prior to April 5, 2002, when revised Regulation 68 went into effect.

Progressive argued that it was entitled to demand EUOs of medical providers prior to the effective date of revised Regulation 68 pursuant to case law and arbitration rulings, which rulings should be given collateral estoppel effect. It also pointed to a statement published by the New York State Insurance Department in the State Register dated May 9,2001, at 23, item 16, which opined that the provision providing for an examination under oath in revised Regulation 68 “clarifies existing authority to require such examination.”

Plaintiffs moved pursuant to CPLR 3212 for an order granting partial summary judgment determining that, as a matter of law, prior to April 5,2002 no-fault insurance carriers had no right to demand EUOs of medical providers. The Progressive defendants opposed and cross-moved for partial summary judgment on various grounds.

After reviewing the court and arbitration decisional law cited by the parties, New York Supreme Court Justice Edward Lehner held that Progressive had no right to demand EUOs of plaintiffs prior to April 5, 2002:

While the court is not bound by the above decisions of the Appellate Term [cited by the plaintiffs in support of their motion], this court believes them to have been correctly decided. Accordingly, plaintiffs’ motion for partial summary judgment is granted to the extent that this court declares that, under the applicable prior regulations (11 NYCRR 65.12 [e]), Progressive had no right to demand EUOs of plaintiffs prior to April 5, 2002.

In rejecting Progressive's argument that collateral estoppel effect should be given to various arbitration decisions that were decided against the plaintiffs, Justice Lehner held:

A review of the issues litigated in the prior arbitration proceedings fails to demonstrate that the issue of whether Progressive was legally entitled to EUOs of plaintiffs as part of its verification requests under the administrative regulation then in effect was raised by the parties or actually or necessarily determined by the arbitrators. Thus, there is no basis to apply collateral estoppel against plaintiffs.

With respect to Progressive's other grounds for partial summary judgment, the court:

► GRANTED that branch of Progressive’s cross motion which sought partial summary judgment dismissing plaintiffs’ duplicate claims, the claims previously denied in arbitration, and the claims that plaintiffs elected to arbitrate and then withdrew;

► GRANTED Progressive's cross motion to the extent that it sought dismissal on statute of limitation grounds any claims with a date prior to June 2, 1998;

► DENIED Progressive’s cross motion for partial summary judgment on plaintiffs’ claims based upon their alleged failure to comply with Progressive's verification requests, finding that issues of fact existed regarding whether plaintiffs reasonably and substantially complied with those requests;

► GRANTED Progressive’s cross motion to dismiss plaintiffs' unjust enrichment claim as unopposed; and

► DEFERRED decision on Progressive's argument that plaintiffs were involved in a myriad of wrongdoing, including illegal fee splitting in violation of New York Public Health Law §§ 238 and 238-a, and thus are not eligible for reimbursement by insurance carriers, reserving such questions to the court's determination of a subsequent motion which was argued on April 20, 2009.

Survey of Recent Appellate Term, 2nd Department No-Fault Decisions

NO-FAULT – MEDICAL PROVIDER SUIT – 3-YEAR SOL UNDER CPLR § 214(2)
Boulevard Multispec Med., P.C. v MVAIC
(App. Term, 2nd Dept., decided 4/14/2008)

In Boulevard Multispec Med., P.C. v. MVAIC, the court granted MVAIC's motion for summary judgment, dismissing the provider's suit, based on its finding that the provider had not commenced suit within 3 years of when payment of the bills in question became due. The 3-year SOL of CPLR § 214(2) applied because the provder's action against MVAIC was one "to recover upon a liability, penalty or forfeiture created or imposed by statute" and not based on contract. The court rejected the provider's argument that MVAIC should be equitably estopped from asserting the SOL defense because it had previously taken the position that its verification requests were not untimely. The submission of an untimely verification request did not toll the payment due date and, therefore, the accrual date of the provider's statutory claim against MVAIC. "We disagree with plaintiff's position that its gratuitous compliance with a verification request issued beyond the payment due date, or its apparent willingness now to unilaterally waive the time limit for the sending of a verification request, can render a belated verification request timely and, ultimately, postpone the accrual date of its cause of action. Neither the relevant statute nor the applicable regulations provide for such a waiver." See, also, Kings Highway Diagnostic Imaging, P.C. v. MVAIC (App. Term, 2nd Dept., decided 4/14/2008).

NO-FAULT – MEDICAL PROVIDER SUIT – INDEPENDENT CONTRACTOR – DEFENSE NOT PRECLUDED
Health & Endurance Med., P.C. v. Liberty Mut. Ins. Co.
(App. Term, 2nd Dept., decided 4/14/2008)

In Health & Endurance Med., P.C. v. Liberty Mut. Ins. Co., the court AFFIRMED the lower court's denial of plaintiff's motion and granting of defendant's cross motion for summary judgment. Where a billing provider seeks to recover no-fault benefits for services which were not rendered by it or its employees, but rather by a treating provider who is an independent contractor, it is not a "provider" of the medical services rendered within the meaning of Insurance Department Regulations (11 NYCRR) § 65-3.11 (a) and is therefore not entitled to recover "direct payment" of assigned no-fault benefits from the defendant insurer.

In this case, the claim forms submitted by plaintiff in support of its motion for summary judgment stated that the treating professional was an independent contractor and, in opposition to defendant's cross motion, plaintiff conceded that the services were rendered by an independent contractor. Contrary to plaintiff's contention, that defense is nonwaivable and not subject to the preclusion rule. As a result, the court properly denied plaintiff's motion for summary judgment and granted defendant's cross motion for summary judgment dismissing the complaint.

NO-FAULT – MEDICAL PROVIDER SUIT – BUSINESS RECORDS – DOCUMENT RETENTION POLICY
First Aid Occupational Therapy, PLLC v. New York Cent. Mut. Fire Ins. Co.
(App. Term, 2nd Dept., decided 4/8/2008)

In First Aid Occupational Therapy, PLLC v. New York Cent. Mut. Fire Ins. Co., the court REVERSED the lower court's granting of plaintiff's motion for summary judgment, agreeing with defendant insurer that plaintiff provider had not made a prima facie showing because plaintiff failed to establish the admissibility of the claim forms annexed to its moving papers. " Inasmuch as the affirmation submitted by plaintiff's billing manager was insufficient to establish that she possessed personal knowledge of plaintiff's office practices and procedures so as to lay a foundation for the admission, as business records, of the documents annexed to plaintiff's moving papers, plaintiff failed to make a prima facie showing of its entitlement to summary judgment. The fact that copies of documents were stored in compliance with a document retention policy is not sufficient to establish that the documents were business records in the absence of a showing as to how and when the documents were generated (see CPLR 4518). "

NO-FAULT – MEDICAL PROVIDER SUIT – PRIOR INJUNCTION
A.T. Med., P.C. v. State Farm Ins. Co.
(App. Term, 2nd Dept., decided 4/24/2008)

In A.T. Med., P.C. v. State Farm Ins. Co., the court REVERSED and vacated the lower court's order granting plaintiff's motion for summary judgment. State Farm demonstrated on appeal that in a separate action brought by State Farm against various health care providers including the plaintiff, Nassau County Supreme Court had enjoined the providers from commencing suit against State Farm to recover no-fault benefits during the pendency of that action. State Farm successfully argued that plaintiff's summary judgment motion in this action, therefore, was improperly made, the Appellate Term agreeing that the injunction barred the motion.

NO-FAULT – MEDICAL PROVIDER SUIT – ILLEGIBLE PEER REVIEW REPORTS
Boris Kleyman, P.C. v. Kemper Ins. Co.
(App. Term, 2nd Dept., decided 4/24/2008)

In Boris Kleyman, P.C. v. Kemper Ins. Co., the court REVERSED the lower court's order denying plaintiff provider's motion for summary judgment. The peer review reports submitted by Kemper in support of its defense that the services rendered were not medically necessary were illegible. Thus, the Appellate Term held that Kemper failed to demonstrate the existence of a triable issue of fact as to medical necessity.

Forum Shopping for No-Fault Dollars f/k/a Determining Venue

NO-FAULT – MEDICAL PROVIDER SUIT – VENUE – NEW YORK CITY CIVIL COURT ACT § 305(b)
Tribeca Med., P.C. v Dollar Rent A Car
(NYC Civil, Richmond Co., decided 4/22/2008)

Any competent and honest no-fault litigator would have to admit that certain forums are regarded as being more favorable to medical provider assignees and less friendly to insurers than others. Or sometimes its just a matter of forum conveniens to plaintiff's counsel. Any medical provider litigator who does not at least consider the potential advantage of commencing as many no-fault recovery actions as possible in the most favorable forum would be doing the client a professional disservice.

In Tribeca Med., P.C. v Dollar Rent A Car, 2008 NY Slip Op 50812(U) (NYC Civil Court, Richmond County, decided 4/22/2008), defendant moved to change venue from Richmond County, where plaintiff's counsel's office was located, to Kings County and Queens County where the plaintiff's assignors lived. Although defendant correctly pointed out that NYCCCA § 305(a) provides that if "the plaintiff is an assignee of the cause of action, the original owner of the cause of action shall be deemed the plaintiff for the purpose of determining proper venue", Richmond Civil Court Judge Katherine Levine denied the motion based on NYCCCA § 305(b), which provides that "a corporation...shall be deemed a resident of any county wherein it transacts business, keeps an office, has an agency or is established by law."

Adopting the "more liberal construction that must be accorded to venue rules," Judge Levine ruled that under CCA § 305, there need not be a nexus between the cause of action in issue and the business transacted by the corporation in that particular county. In cases of insurer defendants, proof of the issuance of policies, collection of premiums, and forwarding of invoices and other correspondence has been deemed sufficient "transaction of business" within a county to support venue. Plaintiff submitted only one page from Verizon's Staten Island Yellow Pages and defendant did not address the "transacts business" standard of CCA § 305(b), making it "impossible" for the court to assess whether defendant transacted business in Richmond County. Because the defendant had not carried its burden of establishing that plaintiff's forum choice was improper, the court denied the defendant's motion to change venue.

So it's one thing to venue in Richmond County a matter that arguably should have been brought in Queens or Kings. How proper or fair can it be, however, to venue an Erie County loss with an Erie county assignor, Erie County treatment, an Erie County assignee, and an Erie County IME doctor in Kings County or New York County? What's up with that? Can that be anything other than unabashed forum shopping?